Income — Business; Form 1040, Line 12

Reporting Business Income

Form 1040

Form 1040, line 12, is used to report income from a business operated or a sole proprietor profession. Schedule C-EZ or Schedule C shows the income and expenses and the net amount is carried to Form 1040, line 12. An activity qualifies as a business if the primary purpose for engaging in the activity is for income or profit and the taxpayer is involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business.

A hobby is an activity typically undertaken for pleasure during leisure time. To report income from an activity not for profit, see Form 1040 Instructions, line 21, and Publication 17, Other Income. This topic is out of scope. Refer any taxpayers with not-for-profit activity to a professional tax preparer.

Form 1040, line 12, is also used to report wages and expenses the taxpayer had as a statutory employee or certain income shown on Form 1099-MISC, Miscellaneous Income.

Some employers misclassify workers as independent contractors and report their earnings on Form 1099-MISC. Taxpayers who believe they have been misclassified should contact the IRS and ask for help. Until the determination has been made by IRS to reclassify them as employees, they should report the income on Schedule C-EZ/C.